AviationRegister   E-Xpert Witness Journal

Global developments presenting risks and rewards for the aircraft trading and financing market

Comments are subject to the site's terms of use and do not necessarily reflect the opinion or approval of the publisher, editorial staff or employees. Users whose comments violate the terms of use may have their comments removed or all of their content blocked from viewing by other users without notification. The publisher does not guarantee information accuracy and disclaims all liability.

Headline News was last updated: December 19, 2009

Service

Guide.

M

B787 graphic pinpointing the wrinkle problem: Click on Aircraft link to view.

April 2009

THURSDAY APRIL 23rd 2009

Aerospace bank have consolidated and are show tentative signs of recovery in the first quarter:

American Express: Posted a better-than-expected quarterly profit of $439M in the first quarter of 2009. The bank plans to pay back the TARP money it received . In November 2008 the Federal Reserve granted a request by American Express Co. and a related company, American Express Travel Related Services Co. Inc., to become a bank holding company, opening the door for the credit card giant to accept deposits and permanently access financing from the Fed. The Fed cited "emergency conditions" as the basis for approving the request.

Bank of America/Merrill Lynch/Countrywide.  Better than expected results based on accounting changes and one time gains. Posted a first quarter profit of $2.81Bn but warned of worsening loan default problems. Problem loans tripled to $25.7Bn. Bank of  America has received $45Bn in government aid. A $1.9Bn pre-tax gain from selling shares owned in China Construction Bank helped results. Higher revenue from Merrill Lynch helped offset the $13.4Bn provision for credit losses taken during the quarter.  Countrywide Financial and MBNA are suffering. The bank’s results are likely to be more volatile going forward because it “is no longer exclusively a retail bank.”

CIT became a bank holding company in 2008. It reported a full year loss of $644.6M and ended the year with $8.7Bn in cash. 

CIT borrowed $150M through a secured aircraft financing facility, under which CIT is financing an additional $0.7Bn of Airbus aircraft for 2009 delivery. Equipment gains increased in the last quarter of 2008 primarily due to aircraft sales. Finance revenues decreased by 8% resulting from lower operating lease rentals and margins, and adjustments on certain lease residual balances; the re-pricing of some assets at lower rates and lower asset levels. Lower market interest rates were offset by the higher funding costs for new and renewed facilities. Transportation finance was the only asset segment to report a sequential period volume increase for the last quarter of 2008 due to the scheduled delivery and placement of 11 aircraft. The aircraft portfolio was 100% leased. Return on transportation asset risk-adjusted capital was 19% compared to 16% in the third quarter of 2008.

Citigroup. Better than expected results based on accounting changes and one time gains.

The bank will continue to divest non-strategic assets.  Citigroup Inc. reported a net loss for the 2008 first quarter of $5.1Bn. Results include $6Bn in pre-tax write-downs and credit costs on sub-prime related direct exposures. It includes write-downs of $3.1Bn on funded and unfunded highly leveraged finance commitments, a downward credit value adjustment of $1.5Bn related to exposure to monoline insurers, write-downs of $1.5 billion on auction rate securities inventory, and a $3.1Bn increase in credit global consumer.

Goldman Sachs. The $1.81Bn in first-quarter earnings exceeded the most optimistic analysts  estimates. Standard & Poor's is keeping its "negative" outlook on Goldman  because these profits were concentrated in fixed-income trading and on concerns  that these profit may not be sustainable. The bank raised $5Bn to help repay $10Bn in government aid.

    J.P. Morgan Chase/Bear Stearns/Washington Mutual. Reported a better-than-expected $2.1Bn quarter profit based on a record performance at its investment bank. The result is seen as offering hope for a recovery of the   global financial sector.

     Morgan Stanley. The larger-than-expected first quarter loss of $578M was related to its deteriorating commercial real estate portfolio and “by an improvement in the value of its own debt!" This improvement increased the amount of debt on the bank's books. The bank cut its dividend.

PNC Financial/National City. National City has identified assets they are liquidating as part of PNC's need to continue to reduce risks. PNC acquired National City in a $5.6Bn in October 2008 after drawing down on $7.7Bn of U.S. Treasury TARP emergency funding which it secured by issuing preferred stock and related warrants to the government. The merger created the fifth largest bank by deposits in the USA.

    Wells Fargo/Wachovia. Reported a record first-quarter $2.4Bn profit that exceeded expectations. The  result was due to the best mortgage origination quarter since 2003 and despite a  growing portfolio of problem loans. Wachovia, which Wells Fargo acquired late  last year, accounted for 41% of revenue.

Regional banks may need to sell stock build reserves for future loan losses as a result of losses from commercial real estate and corporate loans.  Regions Bank, Sun Trust, Keycorp and Fifth Third are all exposed to real estate risk.

Large regional banks hit by bad loans and heavy losses:

Bank of New York Mellon (Custody):   BNY Mellon is the world’s largest custody bank. First-quarter profits declined 51% to $370M as fees earned from record keeping and money-management fell 28%. BNY Mellon earns fees from keeping records and lending securities to hedge funds, mutual funds and pension funds. Falling equity markets in 2008 caused a 16% drop in custody assets to $19.5Tn. Money managed for clients fell 20% to $881Bn. As a result BNY Mellon’s 2008 fee revenue fell 20% to $2.4Bn.

Capital One Financial:

Comerica expects to take $650M to $700M in charge-off;s in 2009.   

GMAC Financial Services: The company lost $2.52 billion in the third quarter of 2008 due to huge losses in both its

mortgage and auto loan businesses. In December 2008, the Federal Reserve accepted the company's application to become a bank holding company so that it could gain access TARP funding. GM sold 51% of GMAC to a consortium led by Cerberus Capital Management in 2006. The transaction  raised $14Bn over 3 years. Investors included Citigroup's private equity arm and Aozora Bank of Japan.

Huntington Bancshare: Recorded a first-quarter loss of $2.43Bn, paid $33M in preferred dividends as part of

the  U.S. Treasury financial rescue program and set aside $300M to cover future losses from commercial loans. .

Keycorp: Posted a bigger than expected first quarter loss of $488M. The result was impacted by a $300M credit-loss provision and commercial loan losses.  The bank cut its dividend and added $857M to its future loan loss provision.

M&T Bank: Quarterly profits dropped 68% to $64.2M due to problems with commercial loans that have forced the bank to increase future loan loss provisions by $158M.

Metlife Bank: Exposure to heavy losses make result in the need for addition capital.

Regions Financial: Profits were down to $77M due to an unanticipated increase in non-performing loans, charge-offs and provisions for credit losses.

State Street Bank (Custody): Profits were down by $84M as fee income fell.

SunTrust:

U.S. Bancorp: Profits fell for the fourth consecutive quarter to $529M. Profits were down 51% due to charge-offs from delinquent construction and development loans. The bank is setting aside larger provision to cover future credit losses.

GE has a$171Bn backlog but customer progress payments (deposits on orders) are slowing.  Sales in the first quarter were $39.3Bn. Though the real estate portfolio is expected to incur more losses, GE Capital is expected to report a full year profit of $2.5Bn in 2009, down by 50% from previous estimates. GE does not provide full year profits forecasts anymore. Sales in the first quarter of 2009 were $24.5Bn.

Investors are concerned that GE’s cash position may require the company to raise additional equity but management no additional capital is required. GE’s loan loss reserves are at 2% compared to an average 3% for banks.  If necessary GE can access debt through the federal guarantee program, the company can cut costs and can sell assets

Interest rates/rated corporate bonds: Moody’s seasoned interest rates are at $5.41%, up from a 52-week low of 4.74%.  BBB rated corporate bond interest rates are at $8.47%, up from a 52-week low of $6.89%.

Interest Rates: The Federal Funds rate is in the 0-0.255 range, the Prime rate is averaging 3.25% and LIBOR (3-month) is 1.16%.

Dividend yields for the S&P 500 are averaging 3.47% and for the Russell 2000 they are at 2.44%.

Bankruptcies in Japan: Thirty-one of the 45 publicly traded companies that went bankrupt in Japan in the last twelve months were property or construction-related companies.

Bad-loan costs are rising for Japanese lenders as bankruptcies rise in Japan’s deepening recession.

Japanese banks are raising more than 5 trillion yen in new capital to repair balance sheets after falling markets eroded the value of their stock investments.

Sumitomo Trust & Banking Co; Osaka, is the fifth-largest bank in Japan. The bank posted a $50M net income for the year ended March 31, a 94% decline year over year. Sumitomo Trust sold 70Bn yen in preferred stock in December 2008. The bank booked charges on bad loans to real-estate companies and investments. Sumitomo Trust specializes in asset management and real-estate financing and Sumitomo Trust is one of the few major banks to report a profit. Sumitomo Trust has 48.3Bn yen in long-term loans with Aiful Corp; and is the largest lender. Aiful recently had its credit ratings cut to the lowest investment grade by Fitch Ratings and Moody’s Service Inc; and is  under review for further downgrades.

Mitsubishi UFJ Financial Group, Inc. (MUFG) and Morgan Stanley announced a capital alliance on October 13, 2008, and are pursuing discussions on a global strategic alliance. As one element of this initiative it was announced that Nobuyuki Hirano, a director of MUFG (also a senior managing director of Bank of Tokyo-Mitsubishi UFJ, Ltd.), has been appointed to the board of directors of Morgan Stanley, effective from March 10, 2009. By leveraging and combining their respective strengths, MUFG and Morgan Stanley plan to create a powerful alliance relationship, as partners that can provide customers with a broad range of financial services in global markets including leasing and asset management.

Mitsubishi UFJ Financial Group Inc; with approximately $1.8Tn in assets is Japan’s biggest lender and the second largest bank in the world. It was formed in 2005 through the merger of Mitsubishi Tokyo Financial Group and UFJ Holdings. As a financial group, the Company provides a variety of financial and investment services including commercial banking, trust banking, international finance, and assets management services.

Sumitomo Mitsui Financial Group Inc; Japan’s second biggest bank, said April 9 it probably had a loss of 390BN yen for the year ended March 31.

Mizuho Financial Group Inc; may also post full year losses according to leading analysts.

Standard Bank Group of South Africa, the largest bank in Africa, and 20% owned by the Industrial & Commercial Bank of China (ICBC), reported 2008 profits of $1.6Bn - up 8% on 2007 results.

•Expects 2009 to be a difficult year because of the downturn in world commodity prices.